US election: Cashing in on the safest bet

Can the US stock market predict the result of the Presidential election?

There is a theory on Wall Street that says it can.

The idea is that if the Standard and Poor's 500 stock index makes gains in the three months before Election Day then the President, or the candidate from the same party as the President, is likely to win. But if stocks go down the candidate from the other party is favoured to win.

The theory is based on elections going back to 1928. In all but three of those elections the theory proved correct.

So if the S&P500 goes up between now and Election Day on November 8, Hillary Clinton looks set to win. If the S&P500 goes down, Donald Trump is likely to win.

The last time the theory did not work was in 1980 when Ronald Reagan defeated President Jimmy Carter. Stocks rallied six percent in the three months before Election Day, but President Carter was voted out of office.

The theory makes sense if you think of the stock market as a reflection of the economy. If the economy is strong then the President, or the President's party, is likely to get the credit.

The reverse holds true as well. Just like 1980, this year could be different.

Many Americans are disillusioned. There is a strong anti-Government feeling in the air. But there are also many questions about the "challenger" Donald Trump and whether he has the right temperament to be President.

Many, many, predictions about this election have proved useless already.